Risk-Off Mood on Fitch Downgrade

STOCK INDEX FUTURES

Stock index futures are lower after late Tuesday Fitch Ratings downgraded the U.S.’s credit rating to AA+ from AAA. This surprise move from Fitch prompted a risk-off mood in the markets.

The ADP employment report showed an increase of 324,000 when a gain of 185,000 was expected.

Mortgage applications in the U.S. declined 3.0% in the week ended July 28, following a 1.8% drop in the previous period, according to data from the Mortgage Bankers Association. Applications to refinance a home loan fell 2.5% and those to buy a home declined 3.2%.

Most analysts appear to be bearish on balance, which from a contrarian point of view, suggests any declines will be temporary.

Prices are likely to at least partially recover his afternoon.

CURRENCY FUTURES

The British pound is steady today, but is near its weakest level since July 6 in advance of the Bank of England’s policy announcement on Thursday. Traders are  divided between the likelihood of a 25 basis point increase, which would take the interest rate to a 15-year high of 5.25%, or a more substantial 50 basis point hike.

The consumer confidence indicator in Switzerland improved to -27.1 in the third quarter of 2023 from a revised -29.6 in the previous period, but remained well under its long-term average.

INTEREST RATE FUTURES

Financial futures markets are predicting there is an 84% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is a 16% probability of a 25 basis point increase.

The Federal Open Market Committee’s 25 basis point increase in its fed funds rate on July 26 is probably the last one in this cycle.

 

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